Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we believe the primary market risk to which we have exposure is interest rate risk.
We are exposed to the effects of interest rate changes on our variable rate debt. Interest rate changes on our fixed rate debt will generally not affect our future earnings or cash flows unless such instruments mature or are otherwise terminated. Our interest rate risk is monitored using a variety of techniques. In order to mitigate our interest rate risk, we enter into derivative financial instruments such as interest rate swaps and caps. To the extent we enter into such derivative financial instruments, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with what we believe are high quality counterparties, including those with whom we have a lending relationship. We believe the likelihood of realized losses from counterparty non-performance is remote. We manage the market risk associated with interest rate swaps or caps by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We do not enter into derivative or interest rate transactions for speculative purposes.
The table below presents, as of December 31, 2020, information about HTA's financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied
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forward rates in effect as of December 31, 2020 (in thousands, except interest rates):
Expected Maturity Date
2021 2022 2023 2024 2025 Thereafter Total Fair Value
Fixed rate debt, gross $ — $ — $ — $ — $ — $ 2,550,000 $ 2,550,000 $ 2,757,227
Weighted average interest rate on fixed rate debt (per annum) — % — % — % — % — % 2.98 % 2.98 %
Variable rate debt, gross $ — $ — $ 300,000 $ 200,000 $ — $ — $ 500,000 $ 501,346
Weighted average interest rate on variable rate debt (per annum) — % — % 1.42 % 1.24 % — % — % 1.35 %
Interest Rate Swaps:
Variable to Fixed $ — $ — $ 300,000 $ 200,000 $ — $ — $ 500,000 $ 501,346
Average pay rate — % — % 1.42 % 1.32 % — % — % 1.38 %
Average receive rate — % — % 0.32 % 0.24 % — % — % 0.29 %
As of December 31, 2020, we had $3.1 billion of gross fixed and variable rate debt with interest rates ranging from 1.14% to 3.75% per annum and a weighted average interest rate of 2.69% per annum, excluding the impact of cash flow hedges. We had $2.6 billion (excluding net premium/discount and deferred financing costs) of fixed rate debt with a weighted average interest rate of 2.98% per annum and $500.0 million (excluding net premium/discount and deferred financing costs) of variable rate debt with a weighted average interest rate of 1.23% per annum as of December 31, 2020, excluding the impact of cash flow hedges.
In addition to changes in interest rates, the value of our future properties is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
Item 8. Financial Statements and Supplementary Data
See the disclosure listed at Item 15 - Exhibits, Financial Statement Schedules subsections (a)(1) and (a)(2).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.